The call came to Mervyn King as he returned home after a game of tennis on bank holiday Monday 10 years ago this week. Eddie George, the governor of the Bank of England, was on the line in a state of high excitement after being told that Gordon Brown, freshly appointed to the Treasury in Tony Blair's government, was proposing to hand over day-to-day control of interest rates to Threadneedle Street.

"I received a call from Eddie asking me to meet him in the Bank as soon as possible. That was the last I saw of the sun for quite some time," Mr King recalled in a lecture last night to mark 10 years of Bank independence. Mr Brown, Labour's first chancellor in almost 20 years, dropped his bombshell the next morning, leaving King to burn the midnight oil over the subsequent weeks to flesh out the plan for a nine-strong monetary policy committee.

Since Mr Brown's announcement on May 6 1997, there have been 120 meetings of the nine member monetary policy committee. Mr King is alone in having attended all of them, first as chief economist, then from 1998 as deputy governor, and since 2003 as governor after "Steady Eddie" retired. The Bank has set interest rates for the second half of the "NICE" decade - non-inflationary constant expansion - and is now trying to keep the economy on an even keel in what Mr King calls the "not-so-bad" decade.

Last month, for the first time since independence, inflation rose to a level more than a percentage point above the 2% target set by the chancellor. As a result, the governor was obliged to write to Mr Brown explaining why the situation had been allowed to develop and what the Bank intended to do about it. The City believes the remedy will be exactly the same as that applied when there were signs of incipient price pressure in May 1997 - higher interest rates. A quarter-point increase is seen as a done deal; some analysts say the first half-point increase since Bank independence could be in prospect.

A half-point increase would be painful for Britain's hard-pressed borrowers, but Brown considers the decision to free the Bank from political control to be one of Labour's great achievements. The public, he believes, accepts that the Bank does what is necessary to ensure price stability and that his model for independence is better than that in either in the US or the Eurozone. Mr Brown believes the Fed is over reliant on the personality of its chairman while the European Central Bank remains obsessed by data on the money supply.

Coincidentally, Mr King and his colleagues are under fire from economists - including one of the original members of the committee, Charles Goodhart - who say the Bank's decision to ignore the large amounts of cheap credit swilling round the economy is the reason inflation is flashing amber warning signals. While acknowledging the criticism last night, the governor said it was difficult to know what signals about inflation changes in the money supply were sending. Attempts to target it in the past had been unsuccessful but the Bank would devote more resources to analysing the money supply.

Lord George made clear in a newspaper interview yesterday, that while the handing of interest rates to the Bank was a bolt out of the blue for the public and most of the Bank's staff, he had been discussing it with Mr Brown and his aide, Ed Balls, for two years before the announcement. Lord George was also careful to praise the setup that was put in place five years previously. "I think the big step for monetary policy was adopting inflation targeting in 1992 [under then chancellor Norman Lamont]."

Mr King argued last night that "granting independence to the Bank of England was the dramatic constitutional change that convinced financial markets of the UK's conversion to stability as the basis of macroeconomic policy".

And that stability, by most measures, has been impressive. Growth has averaged 2.8% - slightly above the postwar average - and there has not been a single quarter of negative growth. The deviation of inflation from its Treasury-set target has been a mere -0.08%.

The governor pointed out that the last 10 years, in spite of a considerable number of economic shocks ranging from the dotcom bust to the recent spike in energy prices, have seen not only a good economic performance in Britain but a better one than any of its partners in the Group of Seven leading economies.

"The fact that the UK improved not only its absolute but also its relative performance - moving from last to first in the G7 league table - is encouraging." But, he said, the MPC could not take all the credit. The faster than average growth performance of the last decade was probably down to the far-reaching economic reforms of previous governments which have made the economy more flexible. The MPC, though, could take credit for the greater stability the economy had enjoyed, he said.

"All this amounts to a revolution in the way interest rate decisions are made in this country. It is hard now to imagine policy being set in any other way."